Getting laid off at 55 can make a 401(k) suddenly look less like a retirement account and more like an emergency escape hatch. That reaction makes sense, especially when a paycheck disappears and bills keep arriving with impressive dedication, but cashing out immediately can create a much bigger problem down the road.
The good news? A layoff at 55 comes with an important retirement-planning wrinkle that many people miss. The IRS allows an exception to the 10% additional tax for certain 401(k) withdrawals after separation from service when the separation occurs during or after the calendar year the worker reaches 55. That does not make withdrawing money automatically smart, but it gives a 55-year-old something valuable: options.
